Investors looking for a promising industry should strongly consider companies targeting a “healthier lifestyle.” Of particular interest are companies developing food & beverage products that cater to individuals looking to stay fit and healthy and help reduce the country’s obesity rate. One company that is drawing notable interest lately is Stevia First Corporation (OTC:STVF).
Stevia First Corporation is an early-stage agribusiness company focused on the production of stevia. The company intends to become a global supplier of stevia through its proprietary methods combined with modern U.S. agricultural innovations. Stevia is quickly gaining popularity with consumers because of its ability to offer a sweeter taste (up to 200x sweeter) than sugar, without the calories.
Currently, almost 36 percent of U.S. adults are obese. Obesity is often known as the silent killer because of its propensity to develop slowly, but often with deadly results. Medical conditions that can occur as a result of obesity include, but are not limited to: heart disease, stroke, high blood pressure, diabetes, cancer, gallbladder disease and gallstones, osteoarthritis, gout, and breathing problems such as sleep apnea. The cost to society because of these conditions has been estimated to be $190 billion per year (21 percent of U.S. health care expenses). Since that cost is clearly not sustainable, global beverage empires like PepsiCo (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) have taken a special interest in companies like Stevia First. It is very likely that distribution deals could occur in the future.
It appears that investors are starting to believe in the future of Stevia First as shares of the company have soared by more than 30 percent over the past month. The likely causes for the recent surge in the company’s share price are because of the recent announcements by Stevia First, the growth rate for organic foods, and the estimated size of the sugar substitute market.
Over the past few months, Stevia First has made a number of critically important announcements that have likely forced the investing community to take notice. Earlier this month, Stevia First announced that it had succeeded in planting, cultivating, and harvesting organic stevia in California. The company was able to accomplish this by making slight changes to already available farming equipment and carefully identifying stevia plants with improved glycoside profiles. The success with stevia cultivation in California further advances the company toward its goal of a commercial stevia product launch. This announcement, combined with the announcement made in October, likely means that Stevia First is just a few months away from gaining mainstream media attention.
In early October, Stevia First announced its first distribution deal with GAB Innovations. Because GAB Innovations is one of the premier distributors of natural health care products in North America, this distribution deal should serve to quickly speed up product development for Stevia First.
Once the company launches its first product, investors will quickly turn their attention toward analyzing the potential revenues that Stevia First can generate. Given a few of the estimates that I’ve seen, the potential is massive. Investors can look at both organic food rates and the annual sugar substitute market to get an idea of what the future holds for Stevia First.
Organic food sales increased from approximately $11 billion in 2004 to roughly $27 billion during 2012, according to the Nutrition Business Journal. More importantly, organic food sales grew by 7.4 percent in 2012, more than double the growth rate for all other food sales during the same period.
In addition to the favorable organic foods growth rate, investors can also look to the estimated sugar substitute market. MarketsandMarkets recently analyzed the market and determined annual sales should total $13.7 billion by 2018. This represents a compound annual growth rate of 4.5 percent. Although Stevia First is likely to capture a significant piece of that market, investors should be conservative in their estimates.
Because Stevia First is currently valued at around $30 million, even a small percent capture of the 2018 projected size will likely turn Stevia First into a multi-bagger return for investors who have the willingness to invest early. If Stevia First can capture 2 percent of the sugar substitute market, annual sales would come in at $275 million. That would likely mean that shares would be trading at a minimum of $4.00 per share, representing a return of 800 percent from current price levels.
Although $4.00 per share is likely a few years out, investors can expect shares to start to rise from current levels over the next few months. Additionally, once the company officially launches its first product, shares will see a significant pop in value. The future looks promising for this young company and early investors are likely to be rewarded.
James Ratz is a portfolio manager with Zebra Capital based out of Los Angeles. He focuses on providing actionable information to investors of all levels.